Next 15 H1 pre-tax profit grows 26 per cent as UK outperforms

Next 15 has reported a sharp rise in profit and revenue in the first six months of 2018 - with growth led by the UK business and a more mixed performance in the US.

Chairman Richard Eyre: strong growth is 'evidence of an effective strategy'
Chairman Richard Eyre: strong growth is 'evidence of an effective strategy'

The listed firm – which last week announced the merger of PR agencies Text 100 and Bite in the US and UK – saw pre-tax profit rise 26 per cent to £15.1m ($19.8m) as underlying earnings (EBITDA) increased 22 per cent to £17.7m ($23.2m).

Organic revenue rose 8.7 per cent in the period, with the UK business outperforming at +14.9 per cent.

Overall revenue increased 14 per cent to £106.8m ($140m) - that growth followed a series of acquisitions, most recently technical industries b2b specialist Technical Associates Group and UK digital agency Brandwidth. (Figures have been adjusted to exclude, for example, certain costs related to acquisitions and goodwill impairment charges).

The company, whose agencies also include The Blueshirt Group, said significant client wins in the period included Capital One, Waze, Diageo and AIG.

Operating margin increased from 13.2 to 14.4 per cent versus the prior six month period. Next 15 said its "strong trading performance" means it is "well placed to meet our expectations for the full year", and has therefore increased the interim dividend by 20 per cent to 2.16p per share.

Chairman Richard Eyre said: "The pace of change in the marketing sector has shown no sign of slowing. Companies are increasingly focused on how consumers experience their brand through digital channels and especially mobile platforms. Next 15 remains committed to building and buying businesses that understand how to take advantage of these platforms, using technology and data to design and manage marketing programs. Our strong growth in the first half of the year is evidence of an effective strategy, which we believe will continue to drive shareholder value."

He said the Board is "encouraged by recent trading and the prospects for the second half remain good". "As a result, the Board remains optimistic about the outlook for the group and is confident that it will meet its expectations for the full year."

Regional breakdown

Revenue in the UK business rose 56 per cent to almost £40m and operating profit grew from £5.2m to £9.5m. Operating margins moved from 20.2 to 23.7 per cent, with the firm citing a "very strong performance" from Beyond UK, Text UK, Twogether and its recent acquisitions.

Next 15 said it also benefited from the operational restructure in the previous period. These have included the merger of PR agency Lexis and Text100, and also digital agency BDA with Twogether, announced in summer 2017.

The US business saw organic revenue growth of seven per cent, as overall revenue in the country rose from $70.7m to $76.2m. However, Next 15 said sterling’s strength against the US dollar and the disposal of most of the Story business resulted in a reduction in reported revenues of two per cent to £55.8m.

The company said Text 100 in the US was "held back" after it ended its long-standing PR relationships with IBM and Lenovo. Revenue at other agencies Beyond, M Booth, Outcast and Bite US grew "significantly", however.

US operating margin reduced to 16.9 per cent, which the company said was partly partly due to the investment in taking some UK brands to the US, but also due to Beyond investing heavily in ‘on-boarding’ a new signature client and in building its capabilities in the country. "We are expecting an improvement in our operating profit margin in our seasonally stronger second half," the firm stated.

Next 15 said it saw "an impressive improvement in both revenue and profitability" in EMEA, but a "modest decline in profitability" in APAC due to client losses.

The acquisitive holding company secured a £20m ($28.1m) loan from HSBC in February 2018, which is in addition to its existing £40m ($56.3m) credit facility with the bank, as it targets further acquisitions.

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